One of the largest expected initial public offerings in the oil patch is now likely to be seen.  We have been expecting this as a contingent IPO for some time and it appears to be on the calendar now.  Kinder Morgan, Inc. has just announced that parent company Kinder Morgan Holdco LLC, has filed to come  public with an S-1 filing for an initial public offering.  The ticker will return to “KMI” on the New York Stock Exchange and the filing is for ‘up to $1.5 billion in common stock.

If this all sounds familiar, it should.  Kinder Morgan was taken private back in 2006 in a management-led buyout with Chairman & CEO Richard Kinder, and investors Goldman Sachs, Highstar, Carlyle, and Riverstone.  Before (and after) the effects of the offering, Richard Kinder owns 30.6% of the interest.  There are currently two public Kinder Morgan entities.  Kinder Morgan Energy Partners LP (NYSE: KMP) is down 0.6% at $69.92 and Kinder Morgan Management LLC (NYSE: KMR) is down 0.8% at $63.43.

Goldman, Sachs & Co. and Barclays Capital are acting as joint book-running managers for the proposed offering.  No deal terms have been formally stated and that $1.5 billion is for filing purposes and could easily be changed  between now and the formal IPO date.

The company notes:   We own the general partner and approximately 11.0% of the limited partner interests of Kinder Morgan Energy Partners, L.P., referred to in this prospectus as the “Partnership” or “KMP.” The Partnership is a publicly traded pipeline limited partnership whose limited partner units are traded on the New York Stock Exchange under the ticker symbol “KMP.” Additionally, the shares of our subsidiary that manages the Partnership, Kinder Morgan Management, LLC, referred to in this prospectus as “Kinder Morgan Management” or “KMR,” are traded on the New York Stock Exchange under the ticker symbol “KMR.”

Here is perhaps the single biggest issue to consider for new buyers… Kinder Morgan itself will not receive any proceeds from the offering.  Included in those existing shareholders are affiliates of Goldman Sachs, Highstar Capital LP, The Carlyle Group, and Riverstone Holdings LLC.

Kinder Morgan Holdco LLC is planning to convert from an LLC to a Delaware corporation, and the entity will be renamed Kinder Morgan, Inc.  The partnership and interests show the following:

• the general partner interest, which entitles it to receive incentive distributions;
• 21.7 million of the 222.4 million outstanding KMP units, representing a 6.9% limited partner interest;
• 12.9 million of the Partnership’s 90.3 million outstanding i-units, representing a 4.1% limited partner interest, through its ownership of 12.9 million KMR shares (i-units are a class of the partnership’s limited partner interests that receive distributions in the form of additional i-units instead of cash;
• it also owns a 20% equity interest in NGPL PipeCo LLC, the owner of Natural Gas Pipeline Company of America and certain affiliates, collectively referred to in this prospectus as “NGPL.” NGPL is a major interstate natural gas pipeline and storage system that it operates.

In 2009 and 2010, it distributed an aggregate of $650 million and $700 million, respectively, to its current investors.   KMP’s partnership agreement requires KMP to distribute all available cash after the end of each calendar quarter.  Business operations are numerous in the initial prospectus filing with the SEC.  Some are as follows:

Products Pipelines— approximately 8,400 miles of refined petroleum products pipelines that deliver gasoline, diesel fuel, jet fuel and natural gas liquids to various markets; plus approximately 60 associated product terminals and petroleum pipeline transmix processing facilities serving customers across the United States.

Natural Gas Pipelines— approximately 15,000 miles of natural gas transmission pipelines and gathering lines, plus natural gas storage, treating and processing facilities, through which natural gas is gathered, transported, stored, treated, processed and sold.

CO2— Produces, markets and transports, through approximately 1,400 miles of pipelines, carbon dioxide to oil fields to increase production of oil; owns interests in and/or operates ten oil fields in West Texas; and owns and operates a 450-mile crude oil pipeline system in West Texas.

Terminals— approximately 120 owned or operated liquids and bulk terminal facilities and more than 30 rail transloading and materials handling facilities located throughout the U.s. and portions of Canada, which together transload, store and deliver a wide variety of bulk, petroleum, petrochemical and other liquids products.

Kinder Morgan Canada— Transports crude oil and refined petroleum products through over 2,500 miles of pipelines from Alberta, Canada to marketing terminals and refineries in British Columbia, the State of Washington and the Rocky Mountains and Central regions of the United States.

During the first nine-months of 2010 revenues were $6.2367 billion versus $5.2345 billion for the same period in 2009.  Operating income for the nine-month period was $830.9 million versus $1.0478 billion for the same period in 2009.   As of September 30, 2010: net property, plant and equipment are listed as $16.9479 billion and the total assets were listed as $28.7488 billion.

Kinder Morgan Management LLC (NYSE: KMR) is very close to an all-time high. It was under $35 at issue in 2001 and now sits above $63.00.  It has also paid out nearly $20.00 in distributions since.  Kinder Morgan Energy Partners LP (NYSE: KMP) has grown exponentially.  Kinder Morgan is soon to be public once again.  Unless the world economics and unless the world of energy changes between now and then, it is a very safe assumption that the initial public offering will have a very high interest from institutional and retail investors alike.

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JON C. OGG

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